Attorneys hold funds for clients, and many attorneys get in trouble because of it.  Just this week two disciplinary cases were published.  In one the brother of an attorney converted a large sum from the escrow account.  The attorney was suspended for failing to supervise his brother.  Here, the attorney resigns in the face of two claims that he took a large sum of money that should have been in escrow. In the second of the two complaints he was sued for, and admitted legal malpractice,

Matter of Weiner ;2012 NY Slip Op 01580 ;Decided on March 1, 2012 ;Appellate Division, First Department ;Per Curiam. 
 

"Respondent acknowledges that in August 2011, a complaint was filed against him by an individual alleging that he wrongfully was in possession of her $10,000 down payment, wired to him as seller’s attorney, for the purpose of purchasing real property. When the mortgage application was denied, the individual was entitled to the return of her down payment which respondent had kept in his business account since he did not have an escrow account related to his practice of law. In June 2011, he gave the individual a check for $10,000, but, it was returned for insufficient funds. It is further alleged that respondent used the down payment funds for a purpose other than what it was intended.

In September 2011, respondent received a copy of a complaint filed against him by two individuals alleging that he converted escrow funds for his personal use without their authority during the course of his representation as their attorney in the sale of their apartment. Earlier, on or about August 2, 2011, the two individuals had commenced a civil suit in New York Supreme Court against respondent alleging, conversion, breach of contract, legal malpractice, breach of fiduciary duty or negligence. On or about August 15, 2011, respondent entered into a stipulation with them wherein he admitted that he had no defense to the claims asserted in the civil lawsuit and a judgment was entered against him for $116,812.19, which included prejudgment interest and attorney’s fees. "

Litigants faced with the 3 year statute of limitations often turn to a fraud cause of action.  Fraud has a 6 year statute of limitations, and in some instances an even longer discovery statute, which would be 2 years after discovery of the fraud.  It’s inviting and promises a cause of action when the legal malpractice time has passed.  It does not always work, and when it is clumsily pled, it is generally a failure.

Coleman v Korn ;2012 NY Slip Op 01374 ;Decided on February 23, 2012 ;Appellate Division, First Department  was dismissed because the fraud was not pled, and raised only late in motion practice.  "Plaintiff was required to commence this legal malpractice action within three years of defendant’s withdrawal as his counsel, but failed to do so (see CPLR 214[6]; cf. Gonzalez v Ellenberg, 300 AD2d 173, 174 [2002]). Plaintiff’s fraud and Judiciary Law § 487 claims were raised for the first time in a surreply, which Supreme Court properly refused to consider (see CPLR 2214[b],[c]; Garced v Clinton Arms Assoc., 58 AD3d 506, 509 [2009]). "
 

What happens to a legal malpractice case when documents suddenly go missing?  Is there a responsibility to maintain documents from the underlying case based upon letters and discovery demands in the underlying case?  How does a $ 20 million legal malpractice  case get dismissed well before the merits are ever tested?

In 915 Broadway Assoc. LLC v Paul, Hastings, Janofsky & Walker, LLP ; 2012 NY Slip Op 50285(U) ; Decided on February 16, 2012 ; Supreme Court, New York County ; Fried, J. we see the results of "systematic" deleting of electronic data. 
 

"Paul Hastings asserts that 915 Broadway, in particular, 915 Broadway representative Joel Poretsky, intentionally destroyed numerous pertinent documents after the duty to preserve such documents arose on April 1, 2008, the day the Litigation Hold was circulated. After being apprised by Paul Hastings that 915 Broadway had destroyed documents pertaining to this litigation, on March 31, 2011, I ordered 915 Broadway to hire forensic IT experts to analyze the extent of 915 Broadway’s document destruction problem. Those IT professionals confirmed that 915 Broadway had deleted relevant electronic documents well after a duty to preserve those documents arose. As more fully set forth below, the evidence adduced by 915 Broadway’s own IT professionals reveals the 915 Broadway’s destruction of relevant documents was extensive and systematic, and that, responsive documents continued to be destroyed by 915 Broadway, even after Paul Hastings raised its spoliation concerns before me.

Paul Hastings asserts that, any documents related to or touching upon the above claims, are crucial to its ability to present a complete defense in this action, and that 915 Broadway’s failure to safeguard its own documents related to these topics has permanently and irrevocably tainted the documentary record in this matter, and has made it impossible for Paul Hastings to adequately defend itself against 915 Broadway’s claims. Paul Hastings argues that the most severe sanction — the dismissal of 915 Broadway’s amended complaint — is thus appropriate and necessary to redress the prejudice that Paul Hastings has suffered as a result of the spoliation.

Under New York law , a party is required to preserve evidence that may be relevant to pending or reasonably foreseeable litigation. Thus, " [o]nce a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold’ to ensure the preservation of relevant documents’" (Voom VD Holdings LLC v EchoStar Satellite L.L.C., ___ AD3d ___, 2010 NY Slip Op. 00658 [1st Dept 2012], quoting (Zubulake v UBS Warburg LLC, 220 FRD 212, 218 [SD NY 2003] ). Over the past decade, this duty to preserve has been extended to electronically stored information, including email and [*7]other electronic documents (see e.g. McCarthy v Phillips Elec. N.A., Index No. 112522/03, at 3 [Sup Ct, NY County June 9, 2005] ["duty to preserve relevant evidence … encompasses electronic data"]). Indeed, "[c]ourts have held that the contents of a computer are analogous to the contents of a filing cabinet" (Etzion v Etzion, 7 Misc 3d 940, 943 [Sup Ct, Nassau County 2005]). Thus, like the contents of a filing cabinet, which must be retained by a party to a pending or reasonably foreseeable litigation, electronic information saved on computers and email servers must also be diligently preserved.

Under the traditional law of spoliation of evidence, "[w]hen a party alters, loses or destroys key evidence before it can be examined by the other party’s expert, the court should dismiss the pleadings of the party responsible for the spoliation" (Squitieri v City of New York, 248 AD2d 201, 202 [1st Dept 1998]). Until recently, New York state courts have grappled with the difficult issue of how to apply the traditional law of spoliation — e.g., the prohibition against destroying easily identifiable physical evidence related to, for example, some kind of accident — to the destruction of email and other electronic documents, as "[e]lectronic discovery raises a series of issues that were never envisioned by the drafters of the CPLR," and "are not faced in traditional paper discovery" (Lipco Elec. Corp. v ASG Consulting Corp., 4 Misc 3d 1019(A), 2004 NY Slip Op 50967[U], * 6, * 8 [Sup Ct, Nassau County 2004]). However, in Ahroner v Israel Discount Bank of New York (79 AD3d 481 [1st Dept 2010]), the First Department has recently clarified the standard for imposing sanctions for the destruction of electronic evidence:

On a motion for spoliation sanctions involving the destruction of electronic evidence, the party seeking sanctions must establish that (1) the party with control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the records were destroyed with a "culpable state of mind"; and (3) the destroyed evidence was "relevant" to the moving party’s claim or defense

Establishing that the electronic data was destroyed with a "culpable state of mind" does not require proof that the destruction was imminent or even reckless. " Spoliation sanctions … are not limited to cases where the evidence was destroyed willfully or in bad faith, since a party’s negligent loss of evidence can be just as fatal to the other party’s ability to present a defense’" (Standard Fire Ins. Co. v Fed. Pac. Elec. Co., 14 AD3d 213, 218 [1st Dept 2004] [citation omitted]). Thus, "[a] culpable state of mind’ … includes ordinary negligence" (Ahroner v Israel Discount Bank of New York , 79 AD3d at 482; see e.g. Mudge, Rose, Guthrie, Alexander & Ferdon v Penguin Air Conditioning Corp., 221 AD2d 243, 243 [1st Dept 1995] [dismissing plaintiff’s claims due to its "negligent loss of a key piece of evidence which defendants never had the opportunity to examine"])."

We were recently asked whether an Expert, testifying in a legal malpractice case can commit legal malpractice during testimony in the case.  We discussed whether there was an attorney-client relationship, and whether "absolute immunity" for in-court testimony applied.  Now, Levine v Harriton & Furrer, LLP ; 2012 NY Slip Op 01401 ; Decided on February 23, 2012; Appellate Division, Third Department  discusses the same subject, this time for an engineer.
 

"Plaintiff, a licensed professional engineer, was retained to provide services in connection with a personal injury claim in the Court of Claims against the State of New York arising from an alleged highway defect. The claim was subsequently transferred to defendant, a law firm in the Village of Round Lake, Saratoga County, and plaintiff was again retained. The parties initially proceeded upon an oral agreement. In February 2006, plaintiff submitted a written retainer agreement to defendant setting forth a retainer fee and establishing hourly charges and fees, among other things. Defendant paid the retainer fee and, on the claimant’s behalf, returned the agreement to plaintiff, without signature. Plaintiff subsequently provided services and submitted bills periodically to defendant. Defendant made payments through December 2007, when the trial was completed; thereafter, defendant made no further payments but did request continuing services, which plaintiff provided. In May 2008, the Court of Claims rendered a determination dismissing the claim upon the ground that negligence had not been proven. Plaintiff allegedly continued to submit invoices for payment of the outstanding balance due through October 2008, but received no response. After plaintiff’s counsel contacted [*2]defendant, defendant responded in writing in November 2008, refusing to pay and alleging that the unfavorable determination of the claim had resulted from plaintiff’s professional malpractice. "

"Defendant’s objections were not primarily grounded in the particulars of the invoices; instead, the central contention is that the failure to pay for plaintiff’s services was justified by his alleged malfeasance. However, this claim was not supported by an expert affidavit opining that plaintiff’s services "deviated from accepted industry standards" and that this failure proximately caused the loss of the claimant’s case (Columbus v Smith & Mahoney, 259 AD2d 857, 858 [1999]; see Travelers Indem. Co. v Zeff Design, 60 AD3d 453, 455 [2009]). Contrary to defendant’s claim, the decision of the Court of Claims does not replace such an expert opinion. Although that court criticized some of plaintiff’s methods, it made no finding as to his competence beyond the requisite assessment of the credibility of the conflicting expert opinions. The mere fact that the Court of Claims found plaintiff’s opinions less credible than those of the opposing experts is insufficient to present a factual issue as to whether his performance was substandard; such determinations are necessarily made whenever the opinions of experts are in conflict. Further, the court explicitly stated that its determination was not based solely on credibility, but also on its factual conclusion that the subject accident was proximately caused by driver error, and not by a highway defect."

It really does not get any better than this, in the legal malpractice world.  Client asks "Does the Judge dislike me?"  Attorney answers "No, the judge is fair."  In this story, however, it is all reversed.  From Thomson Reuters, "Judge Steps Aside in Case of Alleged Car vandal"

"NEW YORK, Feb 24 (Reuters) – A Brooklyn judge has recused himself from hearing a legal malpractice case after the plaintiff was arrested for tampering with the judge’s car.

Justice Arthur Schack ruled Friday that he would step aside from the case brought by Alex Breytman against Donald Schechter, an attorney who had represented Breytman in an earlier lawsuit.

Schack said he was recusing himself because Breytman was arrested on Jan. 19 for allegedly committing numerous counts of felony criminal mischief against the motor vehicles of Schack and other colleagues from Kings County Supreme Court.

"To avoid the appearance of any impropriety on my part, I must recuse myself from this action, even though I know I would be as fair and impartial as the individual assignment judge in deciding the motion before the court," Schack wrote.

Schack dismissed Breytman’s case against his former lawyer in February 2011 and denied Breytman’s subsequent motion to reargue, deeming it "frivolous." On Dec. 2, Breytman filed a new motion for relief from the court, which Schack described as "barely comprehensible stream-of-consciousness ranting."

Oral argument on the motion was scheduled for Feb. 24. But on Jan. 19, Breytman was arrested for the car incident. Schack signed a supporting deposition that Brooklyn prosecutors presented to the grand jury in the car case."
 

Gardner v Leitgeb & Vitelli, LLP ;2012 NY Slip Op 50282(U) ;Decided on February 17, 2012 ;Supreme Court, Suffolk County ;Emerson, J. presents an interesting story of parents v. children, with professionals in the middle.  More interesting, fraud, associatinos with organized crime, and a pizza location are all added in the mix of ingrediants. 
 

"This matter involves a dispute between the plaintiffs, Robert and Carmela Gardner, and their son, the defendant James Gardner, over the ownership of the corporate plaintiff, CJEFA Pizza, Inc.("CJEFA"), which operated an Italian restaurant and pizzeria in Fort Salonga, New York. The plaintiffs claim that they were the sole shareholders and officers of CJEFA from 1984 until its dissolution in 2009. The defendant James Gardner claims that he became the sole shareholder and president of CJEFA in 1997 and that he managed the restaurant until the last quarter of 2001, when his parents took over the business illegally. The plaintiffs agree that James was the manager of the business at one time until that relationship was terminated in November 2001 and he no longer had any authority to conduct CJEFA’s affairs. "

"Robert and Carmela commenced this action against James and the Vitelli defendants on or about September 30, 2004. The gravamen of the complaint is that the plaintiffs were damaged by the Vitelli defendants’ failure to prepare and file CJEFA’s federal and state income tax returns for the years 2001 and 2002 and by the Vitelli defendants’ returning CJEFA’s corporate documents to James. The plaintiffs allege that, as a result, they incurred fines and penalties because they were unable to prepare and file CJEFA’s tax returns in subsequent years and because they were unable to properly defend against and cooperate with the sales-tax audit by the [*3]New York State Department of Taxation. The complaint contains causes of action for malpractice, breach of contract, and breach of fiduciary duty against the Vitelli defendants and for conversion against both James and the Vitelli defendants."

"Each of the parties has produced copies of documents, including stock certificates, that purports to prove that party as the lawful owner of the corporation. However, the parties have disputed the authenticity of the produced documents, and the proceedings are rife with allegations of fraud, forgery and associations with organized crime. It is impossible for the Court at this time to determine the authenticity of the documents and the veracity of the various affidavits submitted, which are wildly divergent in their recitation of the facts."
 

"The first and second causes of action for malpractice and breach of contract, respectively, are based on the Vitelli defendants’ purported failure to prepare and file CJEFA’s federal and state income tax returns for the years 2001 and 2002. The unambiguous written engagement letters between CJEFA and the Vitelli defendants required the Vitelli defendants to prepare federal and state income tax returns for CJEFA for the year 2001. There was no agreement to prepare CJEFA’s federal or state income tax return for the year 2002, nor was there an agreement to file any tax returns. The plaintiffs contend that the Vitelli defendants continued to perform accounting work on the sales-and-use tax returns through mid-2003 and that there was an oral agreement between Robert and the Vitelli defendants to file the income tax returns for the year 2001. The clear engagement letters govern the terms of the parties’ relationship and, as a matter of law, cannot be altered by alleged parol or extrinsic evidence (see, Italia Imports, Inc. v Weisberg & Lesk, 220 AD2d 226, 227). It is undisputed that the Vitelli defendants prepared CJEFA’s federal and state income tax returns for the year 2001. They were under no obligation to file those returns or to prepare income tax returns for any other year. Unlike their obligation to prepare CJEFA’s sales-and-use tax returns, their obligation to prepare income tax returns was limited to one year and was not open-ended. Moreover, it is the taxpayer’s nondelegable duty to file timely tax returns (see, Penner v Hoffberg Oberfest Burger & Burger, 303 AD2d 249). Accordingly, the first and second causes of action are dismissed."

Equitable Estoppel is a principal which comes into play most often when a case is not commenced within the statute of limitations. The theory is that plaintiff was lulled into not starting the case by a wrongful act of defendant. Considering that blown statutes of limitations are one well recognized basis for legal malpractice cases, the two concepts are suitably intertwined.

In a legal malpractice decision (arising from a medical malpractice case) we see Justice Shulman of Supreme Court, New York County writing:

"The doctrine of equitable estoppel may bar a defendant from asserting the statute of limitations when the plaintiff "was induced by fraud, misrepresentations or deception to refrain from filing a timely action" (Ross v Louise Wise Sews., Inc., 8 NY3d 478, 491 [2007], quoting Simcuski v Saeli, 44 NY2d 442, 448-449 [1978]; General Stencils, lnc. v Chiappa, 18 NY2d 125, 128 [ 19661). Equitable estoppel will "bar the assertion of the affirmative defense of the Statute of Limitations where it is the defendant’s affirmative wrongdoing . . . which produced the long delay between the accrual of the cause of action and the institution of the legal proceeding" (Zumpano v. Quinn, 6 NY3d 666, 673 [2006], quoting General Stencils, lnc. v Chiappa, 18 NY2d at 128). A defendant may be precluded from.invoking a statute of limitations defense under such circumstances (Putter v North Shore Univ. Hosp., 7 NY3d 548, 552 [ZOOS], quoting Zumpano v Quinn, 6 NY3d at 673).
Where a medical malpractice claim is asserted, the patient’s medical records are material to reaching a responsible decision on whether there are grounds for a lawsuit and equitable estoppel may arise where there is an unreasonable delay in delivering records to an attorney consulted in a suspected case of malpractice (Karnruddin v Desrnond, 293 AD2d 714 [2d Dept 20021). Concealment by a physician or failure to disclose his own malpractice may, in a proper case in conjunction with other factors, provide a foundation for seeking to invoke the doctrine of equitable estoppel to extend the applicable period of limitations (Simcuski v Saeli, 44 NY2d at 452).

Of critical importance, due diligence on the plaintiffs part in ascertaining the facts and commencing the action is an essential element when plaintiff seeks to invoke this doctrine. Although there are exceptions, "the question of whether a defendant should be equitably estopped is generally a question of fact” (Putter v North Shore Univ. Hosp., 7 NY3d at 553). On the other hand, where plaintiff is timely aware of the facts requiring him to make further inquiry before the statute of limitations expires, an equitable estoppel defense to the statute of limitations is inappropriate as a matter of law (Pahlad w Brustman, 8 NY3d 901 [2007])."InLopresti v Bamundo, Zwal & Schermerhorn, LLP; 2010 NY Slip Op 33436(U);  Sup Ct, NY County ; Docket Number: 100206/09; Judge Martin Shulman determines that equitable estoppel does not apply."This record contains no evidence of any affirmative wrongdoing or purposeful concealment on Dr. Marino’s part caused Lopresti’s delay in commencing the underlying action (see Zumpano v Quinn, 6 NY3d at 673; Kamruddin v Desmond, 293 AD2d at 71 5). Lopresti’s allegedly incorrect statements to Bamundo ZwaI as to the last date Dr. Marino treated Vito Lopresti and the delay in having a personal representative appointed cannot be held against Dr. Marino. Rather, Lopresti’s and/or Bamundo Zwal’s own inaction caused the untimely commencement of the underlying case. See, e.g., Public Adm’r of State of New York v Beth Israel Med. Ctr., 2007 WL 176380 (Sup Ct, NY County, Carey, J)(granting summary judgment dismissing action as time barred and finding that hospital should not be equitably estopped from asserting statute of limitations as a defense where plaintiffs inaction and failure to avail itself of various procedural safeguards’ prevented timely commencement of action)."
 

Reading the decision in a case like this requires both a score card and a play diagram. In LZG Realty LLC v H.D.W. 2005 Forest LLC ;2010 NY Slip Op 50958(U) ;
Supreme Court, Richmond County ; McMahon, J. a series of real estate transactions led to mortgages, foreclosure and charges of professional negligence and fraud.
 

"These actions have been joined for trial and are brought by the first and second mortgagees to foreclose mortgages held against real property owned by defendant H.D.W. 2005 Forest LLC, ("H.D.W.") and guaranteed by defendant Eli Weinstein ("Weinstein"). Defendants Benjamin Hager, Esq. and Mallow Konstam & Hager, P.C. (collectively, the "Hager defendants") allegedly represented the mortgagor and Weinstein at the title closing and at both mortgage closings. "

"In its first claim against the Hager defendants, H.D.W. alleges that "[as] a result of Hager’s negligence . . . H.D.W. is now defending itself in the foreclosure action brought by LZG and Tissa, and the premises has two invalid mortgages placed against them (sic)."

In seeking summary judgment dismissing this claim, the Hager defendants allege that Benjamin Hager never purported to represent either H.D.W. or Wolinetz, and argue that the claim sounds in legal malpractice and therefore must be dismissed as there is no privity between Hager and either H.D.W. or its alleged principal, Wolinetz.[FN6] "

"However denominated, it cannot be gainsaid that the pleadings herein give the Hager defendants notice of the transaction out of which H.D.W.’s claim purports to arise. CPLR 3017 allows the Court to grant "any type of relief… appropriate to the proof whether or not demanded." Here, the third-party complaint sets forth sufficient facts to state a claim upon which relief can be granted, and so long as that pleading can be read to embrace the elements of a provable claim, the fact that the pleading theorizes it as something else is immaterial (see e.g. McGinnis v. Bankers Life Co., 39 AD2d 393 [2nd Dept 1972]).

To that extent, so much of the Hager defendants’ motion for summary judgment addressed [*8]to the third-party claim of professional negligence and grounded on the argument that "H.D.W. cannot establish privity, a necessary element in order to prove legal malpractice" is denied. "